MOSCOW, February 24 (RIA Novosti) – The Bitcoin cryptocurrency is not on par with other financial securities as it is not backed by real assets, an official at Russia’s central bank said Monday.
The Bitcoin system, governed by complex mathematical algorithms, has been at the center of recent debate as financial leaders grapple with how to regulate so-called virtual currencies.
As the total number of Bitcoins approaches a hard mathematical limit of 21 million, the coins become more computationally intensive – and costly – to calculate, a process known as mining.
“In order to equate Bitcoins with securities, it is essential to first of all understand what value a financial instrument represents,” said Andrei Shamrayev, deputy director of the central bank’s national payment system.
“[A Bitcoin’s value] is only fixed by the amount of time spent on its ‘mining.’”
The bank said last month that Bitcoin users – who are often also issuers of the currency through mining – could face jail time under laws restricting anonymous financial transactions intended to combat money laundering and the funding of terrorism.
Timur Batyrev, director of the bank’s national payments system, likened the currency Monday to a pyramid scheme fueled by speculative transactions.
“There will be people who are prepared to influence the exchange rate of Bitcoins in order to maximize profits. Chiefly these are people who own a lot of Bitcoins, but there will also be people who will pay for this profit,” Batyrev said.
Designed by an unidentified computer scientist operating online under a pseudonym, Bitcoins have exploded as a currency for illicit transactions and were the primary means of payment on the narcotics-focused Silk Road online marketplace raided by the FBI in October.